The Ultimate Customer Lifetime Value Formula for Shopify Merchants
Easily understand how to calculate CLTV for your Shopify business with step-by-step formulas and methods to monitor and reduce churn.
Mar 13, 2025
Why Customer Lifetime Value (CLV) Matters for Your Shopify Store
Understanding Customer Lifetime Value (CLV) is crucial for Shopify merchants looking to build a sustainable and profitable business. CLV helps you measure the total revenue a customer generates throughout their relationship with your store. The higher your CLV, the more revenue you earn per customer—without increasing acquisition costs.
However, using the wrong CLV formula can lead to miscalculations and poor business decisions. If your formula doesn’t factor in costs, retention, and churn rates, your insights might be misleading.
This guide will break down the best CLV formulas—from simple to advanced—to help you gain precise insights into your Shopify store’s profitability.
Simple Customer Lifetime Value Formula
The most basic way to calculate CLV is:
CLV=Product Price × Number of Customer Purchases
Example: If a product sells for $10 and a customer purchases it 20 times, their CLV for the first year is $200.
Why this is limited:
Doesn’t factor in product costs (COGS), acquisition costs, or retention rates.
Assumes customers always buy at the same frequency.
Now, let’s look at a more holistic approach.
A More Accurate CLV Formula (With Costs Included)
A better way to calculate CLV is to factor in product costs:
CLV = (Product Price−Product Cost) × Number of Purchases
Example: If your product price is $10, but COGS (Cost of Goods Sold) is $4, then:
CLV = ($10 - $4) × 20 = $120
This version is more profit-driven than the simple formula, but it still doesn’t factor in churn rate and retention.
Customer Lifetime Value Formula with Churn Rate
Churn rate (the percentage of customers who stop purchasing) directly impacts CLV. Here’s how to include it:
Formula:
CLV = Gross Profit × Retention Rate
Example:
You acquire 100 customers in January.
You estimate that 5% churn each month.
Your gross profit per customer is $50.
Weighted Gross Profit=Gross Profit × Retention Rate
After 12 months, your cumulative CLV per customer is $18.48.
Advanced Customer Lifetime Value Formula (With Discount Rate)
Over time, customers may purchase less frequently or stop buying altogether. A discount rate accounts for this decline in future purchases.
Formula:
CLV=(1+AnnualDiscountRate/12)(Month−1)CLV = (1 + Annual Discount Rate/12) ^ (Month - 1)
Example:
Annual discount rate = 20%.
Gross profit per customer (first month) = $50.
Retention rate remains steady at 95% after Month 1.
After applying the discount factor, the cumulative CLV is $39.46 per customer.
Predictive Customer Lifetime Value Formula
For forecasting future CLV, use this predictive formula:
CLV=(Net Revenue × Retention Rate)/(1−DiscountRate)
Example:
Net Revenue: $1,000
Retention Rate: 60%
Discount Rate: 25%
After calculations, the expected CLV is $923.08.
This approach estimates future revenue potential, helping Shopify stores optimize their marketing budget.
How to Reduce Churn and Increase CLV
To maximize CLV, focus on retaining customers longer and increasing their purchase frequency. Here’s how:
1. Improve Customer Experience
Optimize your website speed and checkout process.
Offer seamless returns and fast customer support.
2. Launch Loyalty & Subscription Programs
Encourage repeat purchases through VIP memberships and discount tiers.
Offer automated replenishment for consumable products.
3. Personalize Marketing Efforts
Use email retargeting and behavior-based product recommendations.
Offer exclusive deals to high-value customers.
4. Reduce Payment Failures (Involuntary Churn)
Enable automated payment retries.
Use reminder emails for expiring credit cards.
Best Tools for Tracking Customer Lifetime Value
1. Shopify Analytics
Provides basic CLV tracking but lacks detailed cohort analysis.
2. Bloom Analytics
Best for Shopify merchants looking for in-depth customer behavior insights.
3. Peel Analytics
Automates customer retention tracking and provides real-time insights.
4. Lifetimely
Great for predicting future CLV trends and customer purchase behavior.
5. Polar Analytics
Provides multi-channel CLV tracking and segmentation.
Final Thoughts: Why CLV is the Key to Sustainable Growth
Increasing Customer Lifetime Value is not just about making more money—it’s about building stronger relationships with your customers. By tracking and optimizing CLV, you can:
Spend smarter on customer acquisition by focusing on high-value customers.
Improve retention rates and reduce unnecessary marketing costs.
Create targeted loyalty programs to encourage repeat purchases.
By integrating automated CLV tracking tools, Shopify merchants can gain deeper insights, predict revenue trends, and refine business strategies.
Try Bloom Analytics for Advanced CLV Tracking
Tracking CLV manually can be tedious. Bloom Analytics automates this process by integrating directly with Shopify, providing real-time insights that help you boost retention and revenue.
Granular insights into CLV, churn, and customer behavior.
Cohort analysis to understand how different customer segments behave.
Actionable reports to help you make data-driven decisions.
Sign up for a free trial today!
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